So the word right now on Greece is that they’re still talking: The Greek government, the IMF, Germany, etc.
Right now people are feeling good. The euro is up. Sovereign spreads are coming in. All is good.
But there are two reasons to think that this will end like every other bailout plan will end.
First: The maths isn’t there. Greece is insolvent.
Second: Europe’s leadership is a joke.
RBS puts it this way in its morning note:
Moving on to the bigger issue of what is now shaping up as a problematic policy makers coordination failure, it was quite clear there were two possible equilibria in this crisis: a good and a bad one. While we had anticipated that European solidarity would win the day, we did not anticipate the cacophony surrounding the setting up of what could have been an affordable European credit line to Greece. In the event, markets did not give a fourth chance to Europe (considering the three failed attempts from Europe to convince markets) to come to terms with the details of the lifeline to Greece and have now moved on to what appears to be a full blown bond market crash across the periphery.
More worryingly European policy makers do not seem to be grasping the seriousness of the problem at hand. While markets had calmed down somewhat ahead of Trichet and Strauss Kahn Statement, the lack of groundbreaking news on that front is likely to fuel yet again market paranoia. Europe is ill equipped to deal with this situation as it does not have the fiscal framework in place and the ECB is trapped behind its monetary policy straightjacket. Having said that, the longer policy makers wait, the larger the economic and financial costs will be.
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